Former deputy head of the International Monetary Fund
John Lipsky
has called for intelligent investment for Australia to make the most of its high labour costs.

“It strikes me that high labour costs might be challenging but also hopefully it reflects high quality labour," he said at an address to the Australian Business Congress in Sydney on Thursday.

“Intelligent investment will produce increases in productivity which will help to sustain the quite remarkable progress this country has made for the past few decades," he said.

Mr Lipsky, who is a vice-chairman of JPMorgan, retired from the IMF in November 2011 and oversaw the institution during a turbulent time for the global economy as the financial crisis was followed by a European sovereign debt crisis. He briefly headed the organisation after
Dominique Strauss-Kahn
was arrested in May 2011.

Mr Lipsky said that the debate about austerity versus growth in the European context was less important than restoring competitiveness of the peripheral nations.

“You’ve heard a lot about the discussion of austerity versus growth but we shouldn’t lose cite of what is important – if the competitiveness of the periphery cannot be restored, then stability in the euro zone cannot be restored," he said.

“The issue of fiscal balance are of financing not the critical elements of structural reforms that are necessary to make the European experiment a successful one.

Mr Lipsky said a tapering of quantitative easing by the Federal Reserve was appropriate if the US economy continues to improve.

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“Most people when they hear financial sector reform they think regulatory reform – one is increased capital and improved regulation but rather than changes in regulation, changes in the perimeters of regulation to make sure that institutions of all kinds are captured in the regulatory umbrella."